Research

How nimble companies invest and grow during competitive times

In a recent article for the Financial Times, Dr. Paolo Aversa, Lecturer of Strategy at Cass Business School, discussed how a small yet innovative Italian motorsports company responded to the challenges of competitive markets and a weak economic climate, with investment and innovation. Here follows a version of that article.

In 1972 Giampaolo Dallara, a talented Italian car designer and engineer with many years motorsport experience, established his own business: Dallara Automobili. Located in Varano De' Melegari, a small town in the Appennini mountains, the company specialised in designing and manufacturing the racing cars' chassis for several types competitions.

From its very early days Dallara was a pioneer in the use of technological innovation, and this approach allowed the company to both grow and embrace important business opportunities, including collaborations with Lancia and Ferrari. However, a recession in Italy and ever-increasing competition in motorsport made Giampaolo Dallara realise that the company was struggling to fully exploit its innovation potential and thus maximize its market performance. It required a generational turnaround in its leadership, in order to acquire new capabilities and stay abreast of competition.

In 2007 Andrea Pontremoli accepted the challenge to leave the presidency of IBM Italy to join Dallara as CEO & general manager. His arrival corresponded with a radical managerial turnaround at the company. Pontremoli realised how important it was for the company to grow both in terms of size and skills. Despite an economic recession, Dallara and Pontremoli reinvested an average 20% of revenue into R&D year on year. Such investment allowed the company to work with the most advanced 3D manufacturing machines, introduce computational fluid-dynamic systems, and-by hiring several promising engineers from the best universities in Europe-build (in collaboration with Ferrari) a futuristic driving simulator, which alone cost €10 million. Employees increased in number (from 110 in 2007 to more than 250 in 2014) and quality (the number of designers, engineers, technicians, and managers increased from 50% to around 70% of the total number of employees). Dallara intensified its collaboration with a more extensive network of clients and suppliers, leveraging the learning potential that lies in the Italian Motor Valley, the globally renowned area for motorsport business in central Italy. All in all, Dallara upgraded its skills and core activities from manufacturing to design, thus becoming de facto a knowledge company.

The result of this investment was success. In the hypercompetitive, fast-moving market of motorsport, Dallara's cutting edge technological know-how boosted sales significantly. In 2012, Dallara's sales totalled €54.8 million, with an EBITDA of €10.9 million. Today, all car chassis in IndyCar, IndyLight, GP2 (ex F2), Renault World Series, GP3, Formulino and Formula Nippon are made by Dallara. Moreover, it holds 95% of F3 market share all over the world. The Italian Company will also be the single chassis manufacturer for the forthcoming Formula Electric. Dallara works for some of the best known sport car companies in the world: Ferrari, Lamborghini, Maserati, Bugatti, Porsche, Audi and Alfa Romeo (among others). Today, around 300 Dallara cars race in the most important speed arenas in the world. The company was recently described as the "world's most successful yet understated racing builder."

The case of Dallara offers several lessons for business. Firstly, entrepreneurial firms are often characterised by conservative approaches to business. This limits both innovation and risk-taking decisions. Generational turnovers represent an opportunity to shift towards a leadership willing to make bold decisions to seize interesting market opportunities. Secondly, investing in knowledge and capabilities during turbulent contingencies represents a viable strategy to grow and outperform competitors. Finally, the smartest firms are those that not only heavily invest in their business assets, they're also the ones who are able to maximize their returns by innovating their business model.